MNI ASIA MARKETS ANALYSIS: Fed Powell Second Term Risk-On

US TSYS: White House Green-Lights Fed Chair Powell Reappointment

• Tsy futures draw fast two-way trade near lows, equities climb to new highs (4739.5, banks rally). Further appt's to be announced in the weeks ahead -- before Christmas.
• Tsy futures extending session lows after $58B 2Y note auction (91282CDM0) tailed with 0.623% high yield vs. 0.610% WI; 2.36x bid-to-cover drops vs Oct's 2.69x well over five auction avg: 2.54x.
• Tsy futures remain under pressure -- near late morning lows after another tail: $59B 5Y note auction (91282CDK4) with 1.319% high yield vs. 1.309% WI; 2.34x bid-to-cover recedes vs. last month's 2.55x.
• Heavy roll volume, 10Y over 1M, percentage complete still under 25% ahead Nov 30 first notice. The 2-Yr yield is up 7.4bps at 0.5802%, 5-Yr is up 9.1bps at 1.3119%, 10-Yr is up 8.1bps at 1.627%, and 30-Yr is up 6.8bps at 1.9783%.

US: White House Statement on Powell Re-Appointment

• Today, President Biden announced his intent to nominate Jerome Powell for a second term as Chair of the Board of Governors of the Federal Reserve System and to nominate Dr. Lael Brainard to serve as Vice Chair of the Board of Governors of the Federal Reserve System.
• While our country still faces challenges as we emerge from the pandemic, we have made enormous progress in bringing our economy back to life and getting Americans back to work. Since the President took office, the economy has created over 5.6 million jobs, unemployment has fallen to 4.6% – two years faster than projected – and the pace of our economy's growth outstrips the rest of the developed world.
• Link: POWELL

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00050 at 0.07550% (+0.00125 total last wk)
• 1 Month -0.00100 to 0.09238% (+0.00425 total last wk)
• 3 Month +0.00563 to 0.16963% (+0.01125 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.01450 to 0.24388% (+0.00325 total last wk)
• 1 Year +0.03388 to 0.42563% (-0.00675 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $74B
• Daily Overnight Bank Funding Rate: 0.07% volume: $272B

• Secured Overnight Financing Rate (SOFR): 0.05%, $895B
• Broad General Collateral Rate (BGCR): 0.05%, $350B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $331B
• (rate, volume levels reflect prior session)

• Tsy 10Y-22.5Y, $1.401B accepted vs. $3.704B submission
• Next scheduled purchase
• Tue 11/23 1010-1030ET: TIPS 7.5Y-30Y, appr $1.075B
• Operational purchases paused until Nov 29

FED Reverse Repo Operation

NY Fed reverse repo usage recedes to $1,573.769B from 73 counterparties vs. $1,575.384B on Friday. Record high remains at 1,604.881B from Thursday, September 30.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +4,000 short Dec 98.81/98.93 2x1 put spds, 1.5
• +2,000 short Dec 99.06/99.18 1x2 call spds, 1.5
• Overnight trade
• 12,200 EDZ 99.81 calls, 1.0
• 2,300 short Mar 98.75/98.87 put spds
• 6,000 Mar 99.81/99.87 1x2 call spds

• 10,000 TYZ 129.5/130 put spds, 11
• +1,800 USH 153/154 put strip, 210
• -6,000 TYF 130 calls, 33
• -5,000 TYG 128/131.5 strangles, 48
• Overnight trade
• 10,543 TYZ 130 puts vs. wk1 TY 128.5 puts
• 9,500 TYZ 130.5 puts, 14-19, 19 last
• 6,700 TYF 129 puts, 31
• 3,300 TYZ 129.5/131 put spds, 31
• 6,759 FVZ 121/121.5 2x1 put spds

EGBs-GILTS CASH CLOSE: Gains Reverse Despite Lockdown Fears

Bunds and Gilts reversed early gains Monday, with yields rising in the afternoon, making up significant ground on Friday's drop.

• Several bearish factors played into the afternoon weakness, including Fed's Powell being re-nominated as Chair (as opposed to a more dovish replacement), and ECB's Villeroy saying the bank is "serious" about ending PEPP. BTP spreads widened; Gilts underperformed Bunds.
• One undercurrent in the session was the spectre of further COVID lockdowns (Austria started one today, while Germany's Merkel called for tighter restrictions), which kept a lid on equity gains and helped a safe haven bid overnight.
• Light on data today but Tuesday sees flash PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.9bps at -0.739%, 5-Yr is up 4.1bps at -0.596%, 10-Yr is up 4.1bps at -0.301%, and 30-Yr is up 3.8bps at 0.028%.
• UK: The 2-Yr yield is up 4.5bps at 0.534%, 5-Yr is up 3.8bps at 0.681%, 10-Yr is up 5.5bps at 0.934%, and 30-Yr is up 4.7bps at 1.071%.
• Italian BTP spread up 4.2bps at 124.7bps / Spanish down 0.7bps at 71.8bps

EGB Options: Mostly Downside Plays To Start The Week

Monday's Europe bond / rate options flow included:

• RXF2 172.00/171.00 put spread bought for 15.5 in 2k
• OEZ1 135.50/135.75 call spread bought for 13.5/14 in 10k (hearing short cover)
• OEG2 133.50/133.00 put spread bought for 12 in 2k (d -10%)
• 2RU2 100.00/99.875 put spread vs 100.25/100.375 call spread, net paid flat in 3k (bought ps/ sold cs)

FOREX: US Dollar Boosted By Powell Renomination

• The US dollar maintained its upward trajectory to kick off the new week following the announcement that President Biden will stick with Jerome Powell as Fed Chair for another term.
• The dollar index had been trading marginally in the green prior to the announcement and received strong supportive price action in the aftermath amid higher US yields. DXY gains total 0.50% as of writing.
• USDJPY (+0.80%) was the primary beneficiary from the news, jumping from 114.15 to above 114.50 in quick fashion. A slow grind higher throughout the session has seen the pair narrow the gap with the most recent highs at 114.97. Clearance of the Nov 17 high would remove concerns following a bearish engulfing candle last week signalling a potential short-term reversal. Remaining in a technical uptrend overall, the next resistance can be found at 115.51, the Mar 10, 2017 high.
• The New Zealand Dollar was also a notable underperformer against the greenback, extending the month's declines to roughly 3%. For reference, the weakness comes ahead of Wednesday's RBNZ meeting.
• Following a brief re-test of the breakout in EURCHF around 1.0505, the pair remains below the crucial technical pivot. The break (potentially) exposes 1.0397 next, the Jul 15, 2015 low.
• In emerging market FX, the Turkish lira maintained its downward trajectory with USDTRY rising a further 1.4% on Monday and briefly printing fresh highs at 11.4767. At the other end of the spectrum, CLP was the clear and significant outperformer following Sunday's elections.
• Tomorrow's key data will be the release of European flash PMI's, especially in the context of the weaker single currency amid renewed covid restriction fears.
• Wednesday's Core PCE price data and FOMC minutes headline the Thanksgiving week's US calendar.

FX: Expiries for Nov23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1220(E767mln), $1.1340-55(E914mln), $1.1595-00(E1.7bln)
• USD/JPY: Y114.20($840mln)
• AUD/USD: $0.7310-25(A$622mln), $0.7350-60(A$651mln)

EQUITIES: Banks Enjoy Brainard Bounce

• Financials and banks rallied sharply at the open, with Wall Street welcoming news that Brainard had been elevated to Vice Chair at the Fed, but not put in the separate role of supervision.
• Brainard had been seen as being more aggressive on bank regulation, helping prompt a decent rally across Wells Fargo, Morgan Stanley, JPMorgan shares and others.
• The e-mini S&P lurched higher on Powell's confirmation as being nominated for a second term, rising to touch 4740.50 - a fresh alltime high. The focus is on 4747.68 next, a Fibonacci projection. Trend signals such as moving average studies are in a bull mode set-up and corrections remain shallow, reinforcing the bullish theme.
• European markets were more mixed, with the EuroStoxx50 and DAX indices finishing in minor negative territory.

COMMODITIES: Crude Sheds $0.50/bbl On SPR Headlines

• Bloomberg report that the US is now poised to release oil from reserves alongside other nations, with an SPR announcement potentially coming as early as tomorrow.
• WTI crude futures shed around $0.50/bbl on that headline - not entirely unexpected (we'd heard similar from Japan, India already today and over the weekend) but still marks a significant moment in Biden's response to inflation.
• Some more details in the story over the numbers: "plans could change but the U.S. is considering a release of more than 35 million barrels over time, according to one of the people."
• Current size of the SPR is approx 605mln bbls.